Many of the things we take for granted in Uganda today, were unimaginable a few decades ago.

Making a phone call on demand, mobile money transactions, long-term mortgages and well-stocked supermarkets. It is hard to imagine that in the 1990s one needed well-oiled connections to buy sugar, salt or soap.

There is a lot that needs to be improved (more on this later), but we have come so far from the dark days of the past. This remarkable progress was founded on bold action by foresighted leaders, including the recently deceased and much acclaimed Keith Muhakanizi and Emmanuel Mutebile, both of whom served as permanent secretary in the Ministry of Finance, Planning and Economic Development, and were for long at the helm of Uganda’s economic transformation.

Some of the bold decisions taken in the 1990s are legalising the parallel foreign exchange market, privatisation of public enterprises and the drive for fiscal discipline that stabilised the inflation and interest rates.

These bold decisions saved Uganda’s economy from collapse. Uganda’s economic indicators improved remarkably during the period 1990-2020: GDP per capita more than trebled from $245 to $847, export earnings grew from $300m to $5.8b. Uganda’s economy is fully liberalised, with a vibrant private sector. There is even talk of Uganda achieving middle-income status within a few years.

But dark clouds remain and may be intensifying. There are signs of a struggling economy: overstretched public infrastructure, soaring youth unemployment, a growing debt burden and government spending increasingly outpacing tax collections. Many of our challenges are self-inflicted and can be easily overcome. Uganda has a bloated government and public administration structure, which seems to be out of touch with the austere conditions of the rest of the country.

Ramathan Ggoobi, the finance ministry permanent secretary, aptly captured the current predicament in a post on his Twitter page following the conclusion of the April 2023 IMF/World Bank meetings in Washington: “International funding is declining and non-concessional sources are getting more expensive... we must step up collection of domestic revenue and keep fiscal deficits at the bare minimum.”

In Why Nations Fail Daron Acemoglu and James A. Robinson argue that the main reason for national failure are poor decisions by those in power. The authors zero in on the important role institutions play in national prosperity. They distinguish between “vampire capitalism”, founded on extractive processes bent on grabbing wealth and resources away from one part of society to benefit another and inclusive institutions focused on power-sharing, productivity, education, technological advances and the well-being of the nation as a whole. Nations fail,” the authors write, “when they have extractive economic institutions, supported by extractive political institutions that impede and even block economic growth.”

Politics has become one of the most lucrative occupations in Uganda, evidenced by the intensity of competition for political office, the reported “investment” required to win elective office and the perks afforded to our political leaders.

A quote attributed to Peter Obi is instructive: “No country can progress if its politics is more profitable that its industries. In a country where those in government are richer than entrepreneurs, they manufacture poverty.”

Uganda needs another socio-economic transformation, driven by bold political decisions, similar to those taken in the 1990s. It is a truism that faced with dwindling economic resources, nations ought to take a hard look at their expenditure. A more reasonable approach to public expenditure would not only reduce demands on the public purse, but would boost the drive to increase tax compliance.

Another easy win is to get serious on increasing the sustainability of the private sector, particularly the small and medium enterprises (SMEs).

SMEs create the bulk of Uganda’s jobs and they are the engine of development. Uganda needs to move from paying lip service to SME growth and implement well-designed initiatives to support entrepreneurship in Uganda.

These initiatives ought to be multi-period, evidence-based and private sector-led interventions. Politicians and government bureaucrats are least qualified to manage these initiatives. An emerging success story for this approach is the NSSF Hi-Innovator programme. One of the biggest handicaps to SME growth is the lack of appropriate funding. Businesses in Uganda are overly reliant on commercial bank debt as a source of funding. To succeed, businesses need long-term (patient) capital. Increased domestic borrowing by the Government has essentially crowded out the private sector from the capital market.

Relatively high yields on government borrowing result in high benchmark interest rates, which lead to unsustainable lending rates. High yields on government borrowing have also hampered the development of corporate finance instruments such as corporate bonds and commercial paper.

The development of Uganda’s public equity markets has been similarly constrained. It is a vicious cycle: high government borrowing leads to high market interest rates, which starve the private sector of much-needed funding, resulting in poor tax collections, which force the Government to borrow more.

Imagine the transformational impact that thousands of sustainable enterprises would have on Uganda’s socio-economic landscape. Higher government revenues, lower unemployment, lower fiscal deficits and hopefully fewer vampire capitalists. A key lesson to be learned from the extraordinary growth of the four Asian Tigers is that with a good policy framework and great execution, Uganda can leverage its numerous competitive advantages to achieve sustained economic growth. Our abundant natural resources, youthful population, geographic location, among others, provide a solid basis for rapid growth. The missing ingredient is bold political and economic action.

 The writer is a partner at J. Samuel Richards Certified Public Accountant